Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of MedAssets (UNKNOWN:MDAS.DL) had lost about 11% of their value by 1:40 p.m. today after the company offered weak guidance for its 2015 fiscal year during Tuesday evening's fourth-quarter earnings call.
So what: MedAssets bested Wall Street's fourth-quarter revenue estimate by posting a $198.2 million top line -- a 16% year-over-year improvement -- against the $195 million consensus. Its adjusted earnings of $0.39 per share also met analysts' expectations.
However, MedAssets is now offering guidance for its 2015 fiscal year that looks weak compared to both Wall Street's expectations and MedAssets' own earnings history. The company now expects to generate between $753 million and $767 million in revenue and $1.13 to $1.23 in adjusted EPS.
That revenue projection represents a 5% to 7% year-over-year improvement from 2014's result of $720.2 million, but adjusted EPS is expected to decline by anywhere from 9% to 16% from 2014's full-year adjusted EPS of $1.35. Wall Street had expected MedAssets to report $757.9 million in revenue for 2015, but the consensus EPS target of $1.45 is well above MedAssets' guidance range.
MedAssets also reported the retirement of CEO John A. Bardis and named board member R. Halsey Wise as his replacement.
Now what: MedAssets has explained the EPS shortfall as the result of lower-margin services accounting for more of its revenue in 2015, but analyst reports that followed the company's release were more specific and more dire. Deutsche Bank analyst George Hill noted that MedAssets' largest segment is already undergoing margin compression and believes that the company has been "wrestled into submission." He now rates MedAssets as a hold, down from his earlier buy rating.
MedAssets' adjusted forward P/E now looks set to bottom out at roughly 14.3 by year end, based on today's share price and the high end of its EPS guidance. That would be cheap for a growing company, but MedAssets expects its bottom line to shrink in 2015, which makes for an ugly one-two punch to investors' guts when paired to a multi-year slide in free cash flow that began in 2013. Shares might be a good value if you know something MedAssets' executives don't and expect the company to surprise us all with bottom-line growth this year.
However, if you're simply going off of the available financial information, it looks like it's better to avoid MedAssets for the time being.